The social consequences of high levels of immigration are so dire that Britain would be a better place if it were poorer but had tighter border controls, the leader of the United Kingdom Independence Party said.

He proposed a five-year moratorium on people settling permanently in Britain.

Mr Farage said he believed many studies on whether migrants contribute to the economy are flawed because they fail to account for the cost of in-work benefits such as tax credits.

But he added: “If you said to me, would I like to see over the next ten years a further five million people come in to Britain and if that happened we’d all be slightly richer, I’d say, I’d rather we weren’t slightly richer, and I’d rather we had communities that were united and where young unemployed British people had a realistic chance of getting a job.

“I think the social side of this matters more than pure market economics.”

Britain should adopt a US-style work permits programme to meet a skills shortage rather than allow the free movement of labour under EU treaty rules. There should be a ban on settlement in Britain for five years to address the “mess” of illegal migration, Mr Farage said.

"Let's be flexible on work permits, let's recognise that we do have some skills shortages in the British economy - which is very much a failure of our education system," he said.

"But in terms of immigration, in terms of people coming to settle, I would suggest that for up to a five-year period we don't have people coming to settle until we sort out the mess."

Figures in June showed that net migration – the difference between people coming to live in Britain and those emigrating – rose to 182,000 in the past year.

Vince Cable, the Business Secretary, said David Cameron’s pledge to cut net migration to the “tens of thousands” by 2015 was “not sensible” because it is not possible to control EU migration or the number of Britons entering and leaving the country.

“In our view, certainly the Liberal Democrats' view, it's not sensible to have an arbitrary cap because most of the things under it can't be controlled,” he told the BBC.